Last week, 10-year US Treasury rates traded above 1% and the yield curve continued steepening. The expectation of further fiscal stimulus pushed inflation expectations. The 10-year inflation breakeven rate reached 2.1%, a level not seen since 2018. The breakeven inflation rate represents a measure of expected inflation derived from 10-Year Treasury Constant Maturity Securities and 10-Year Treasury Inflation-Indexed Constant Maturity Securities. The latest value implies what market participants expect inflation to be in the next 10 years, on average. Yields on inflation-protected Treasuries (TIPS) barely moved and remain negative.
Over the week, cyclicals outperformed with Banks rallying +7.65%, Materials +6.7% and Energy +9.2%. The equal-weight version of the S&P 500 index gained +2.86% and the small-cap Russell 2000 surged +5.91%. European equites also gained with Banks rallying +6.01%. The Stoxx 600 ended the week +3.04% with +0.66% of that coming on Friday whilst the FTSE 100 rallied +6.39% on the week in the best ever start of the year for the index. The Q4 earnings reporting season will kick off on Friday January 15th in the US with the Bank sector as usual.
Saudi Arabia surprised markets by agreeing to voluntarily take some production offline, a decision that helped Brent prices soar roughly 5% on Tuesday. Saudi Arabia pledged to slash another 1m barrels per day (bpd) in production in February and March, while Russia and Kazakhstan said they would increase their output by a combined 75k bpd. Energy shares outperformed all other sectors and rose the most since late November on the news.
Following an Executive Order issued by the White House late last year, the New York Stock Exchange (NYSE) announced on December 31st that it would begin the delisting process for three major Chinese telecom companies: China Telecom, China Mobile and China Unicom. The announcement led to a sharp selloff in these companies’ shares as investor offloaded their positions (Hong-Kong listed stocks of these companies also sold off). Then, on January 4th, the NYSE announced that after further consultation with relevant authorities, notably the Office of Foreign Assets Control (OFAC), it had determined it would no longer delist the stocks. On January 6th, the NYSE reversed course again, indicating that it would stick to the original plan to delist the three Chinese telecom stocks. On the same day, the OFAC published an updated list specifically naming the three companies, thus leaving little doubt they were covered by the Executive Order.